Tensions between China and Taiwan escalated significantly in August with the visit of US House of Representatives speaker Nancy Pelosi to Taiwan. Despite Chinese foreign ministry delegate Zhao Lijian warning the US that ‘there [would] be serious consequences if she [insisted] on making the visit’ and President Joe Biden’s discouragement, Pelosi still undertook the journey as part of an overall visit to Asia.
Such tension stems from the fact that the majority of the Taiwanese people believe they are a self-governed nation, separate from China. Although official independence has not been declared by the island’s government, the president of Taiwan – Tsai Ing-wen – stated in an interview that Taiwan is ‘already a functionally independent country’ and it doesn’t ‘have a need to declare [itself] an independent state’ as a consequence.
In 2022, only 1.3% of the Taiwanese population wanted official unification with China and only 2.4% identified as solely Chinese. This massively contradicts the statement from Xiao Qian (Chinese Ambassador to Australia) as he outlines that ‘the majority of people in Taiwan believe they’re Chinese. They believe Taiwan is part of China… They are for reunification.’
Taiwan has a rich history with its north-western neighbour. Briefly a Dutch colony (1624-1661), Taiwan was then part of the Chinese Qing Dynasty (1683-1895) until the First Sino-Japanese war where China ceded control of the island to Japan. After the Second World War, however, China reclaimed Taiwan. In the following years, a civil war ensued where over 1.4 million people fled to Taiwan from China, establishing their own government and policies. Yet China still claimed the island as its own. Currently, Taiwan is officially recognised as the Republic of China (ROC) and not as its own state.
The Taiwan Semiconductor Manufacturing Company (TSMC) exports 70% of its semiconductors to China and also fabricates 92% of the USA’s most advanced chips under contract. The TSMC faces competition from leading American technology companies including Apple, Google, Nvidia, Intel and AMD . However, due to the sheer production rate, power, efficiency, and expertise of the TSMC, other manufacturers struggle to compete with Taiwan.
As a repercussion of COVID-19, graphics card (GPU) prices skyrocketed as semiconductor, and thus GPU, production was temporarily shut down or drastically diminished.
From late 2020 to late February 2021, there was a significant (approximately 67% – 125%) increase in Nvidia RTX line GPU prices from resale sources (such as eBay). These effects were principally caused by the stoppage in production during the original (2020) and second (2021) lockdowns, causing restocks for official first-party companies like Nvidia to be delayed and, when they occurred, in smaller quantities. Price increases stemmed from the rising trend amongst the general population to build their own PC from scratch components and/or to mine crypto-currency – the most popular of those Bitcoin. Crypto-currency mining requires thousands of complex mathematical calculations to be completed in short increments of time, requiring the use of several GPUs. Such sharp increase in demand, coupled with supply-side shocks, led to GPU shortages and increased resale values in the secondary market.
Similar circumstances could occur from a Chinese invasion as production will inevitably shut down once again. Since COVID-19 and in 2021, China increased its imports by 58% for semiconductor manufacturing equipment despite US efforts to hinder its growth. US House Representative Michael McCaul, a Texas republican, described the Biden administration as ‘absurd’ by letting China capitalise on semiconductor manufacturing when the US wants to ‘secure the supply chain.’
China’s recent efforts to dominate the semiconductor market can only been seen as a threat to Taiwan and the TSMC. China’s only major semiconductor manufacturer, the Semiconductor Manufacturing International Corporation (SMIC), simply cannot meet current demand within the country, let alone dominate the market, when compared to Taiwan. Looking into the future, consumers can expect GPU and CPU prices to fluctuate massively in this volatile world and possibly to reach much higher peaks than seen previously in the pandemic era, making these figures miniscule in comparison if a first shot is fired.
However, the reason why Taiwan has been able to maintain its status quo is Chinese – and global – dependence, arguably over-dependence, on TSMC chip manufacturing. High calibre industry sources have begun to describe this as Taiwan’s ‘silicon shield’ as to prevent a Chinese invasion.
The immediate solution for the TSMC currently is abundantly clear: to diversify. Dr Kuan-Jen Chen of Cambridge University suggests the following options for both Taiwan and the US:
- The TSMC should “spread the risk” and build manufacturing plants in other countries such as the USA as the entire supply chain could be destroyed if the TSMC solely operates in Taiwan.
- The US should build more manufacturing plants to assert their financial power on China.
The US is already decisively proceeding with the latter option as Biden passed a bill in early August 2022 that would allow the use of $52.7 billion for microchip and semiconductor manufacturing in hopes of competing for dominance over the sector against China.
Although a full-scale invasion of Taiwan by China may not happen, tensions are at the highest point in recent times. The situation between Taiwan and China is an example of where historical and economic factors influence parties involved to make certain decisions. In this volatile age, development and modernity as a whole are threatened by these decisions. We live in a world where the latest iPhone is already priced at a minimum of roughly $1,000 and, with recent cost-push inflation, could increase significantly in the next five years. The situation in Taiwan owing to global overdependence on the TSMC could push already extortionate prices to figures unheard of for a mobile device. Only time will tell.